Impulse Response of Agricultural Performance to Monetary Policy Dynamics in Nigeria:

VAR Model Analysis

Abstract

This study investigates the impact of monetary policy shocks on agricultural performance in Nigeria from 1981 to 2021, employing impulse response and variance decomposition estimators. The impulse response results reveal that average agricultural performance responds positively to monetary policy rate initially, with a subsequent downturn, while lending interest rate shocks significantly boost performance in the short term but adversely affect it later. Liquidity ratio exhibits an initial increase followed by a decline, then a positive response for the remaining periods. Deposit money bank credit to agriculture initially elicits a negative response, followed by a steep rise and maintenance of a positive trend. Findings from the variance decomposition estimator indicate that monetary policy instruments, particularly monetary policy rate, liquidity ratio, lending interest rate, and deposit money bank credit to agriculture, collectively account for 23.79% of the total variation in agricultural performance. Monetary policy rate shock dominates with 44.35%, followed by liquidity ratio (32.64%), lending interest rate (18.78%), and deposit money bank credit to agriculture (4.32%). 
Recommendations include emphasizing expansionary monetary policies, easing access to credit for farmers, prioritizing affordable credit programs, and increasing budgetary allocations to the agricultural sector for sustained economic contributions.